BGE, seeking rate increase, to make case to regulators

Hearings begin Monday in a case that will decide whether Baltimore Gas and Electric Co. customers can expect higher distribution charges next year.

BGE is asking for increases that would come to about $6.62 a month for the typical residential electric customer and about $4.26 a month for the typical residential gas customer. Adding in business customers, the rate request would raise $175 million in the first 12 months.

Battle lines have formed already.

BGE says it needs the higher charges to help fund infrastructure improvements required for reliable service, but other groups contend that the request overreaches. It will be up to the Maryland Public Service Commission to decide how much of an increase, if any, to give the utility.

"It's a very high request that they're making both for gas and electricity," said Paula M. Carmody, who represents residential utility customers as head of the Maryland Office of People's Counsel. "We're certainly asking the commission to grant only a small portion of the rate increase."

The first hearing is scheduled for 10 a.m. Monday at the Public Service Commission's St. Paul Street offices. Testimony from BGE and opposition experts likely will stretch into next week at a minimum.

Separate hearings for public input will begin Jan. 7. The commission is expected to rule on the case in February, and any rate increases would go into effect immediately.

Distribution charges account for only part of a customer's bill — about 30 percent in the case of electricity. The restis the cost of energy, which fluctuates based on market prices and is down sharply compared with costs three years ago, especially for gas customers.

"There's never a good time to have an increase, but if you're going to have an increase, it's good to have it at a time of declining energy prices," said Rob Gould, a BGE spokesman.

In the past five years, the commission has approved rate increases every time a utility asked, but always significantly below the requested amount.

In BGE's last rate case 21/2 years ago, the commission approved increases that were one-third less than the utility had requested from electric customers and two-thirds less from gas customers. For homeowners and renters, that worked out to a typical monthly increase of $1.34 for electric service and 85 cents for natural gas.

BGE says it needs another increase now to maintain and upgrade its distribution system — replacing aging poles, underground cable, gas mains and other equipment. Costs have risen by a third for wooden poles and have more than doubled for electric wire and cable over the past decade, BGE says.

"Our customers' expectations have continued to increase over time — there's less patience for having an interruption in service," said Mark D. Case, vice president of strategy and regulatory affairs at BGE. "So we've been investing more and more in the system to increase that reliability."

But outside experts hired by the Office of People's Counsel to comb through BGE's filings cast doubt that the utility needs as much as it says.

Bion C. Ostrander, a regulatory consultant and certified public accountant, said in written testimony that BGE spent "substantially less" on reliability investments last year than it said it would in its last rate case. This doesn't paint a picture of a utility ramping up its efforts, he said.

"I believe that it is likely that BGE will underspend its 2012 budget," Ostrander wrote.

BGE disagreed with his analysis, arguing in rebuttal testimony that it has "demonstrated a clear pattern of significant and sustained levels of core electric and gas distribution investments," up 45 percent from 2009 to 2011 and continuing to rise this year.

But Ostrander said those numbers amounted to cherrypicking, because only a portion of that spending related directly to reliability.

Some of BGE's big power users, meanwhile, warned that rate increases can ripple through the economy.

Robert B. Cooper, energy director for building products manufacturer U.S. Gypsum Co., said in written testimony that the proposed increase "could lead to a reduction in labor or plant shutdown" if costs at its 135-employee Baltimore operation no longer compare well to other company facilities in the United States and Canada.

Cooper testified on behalf of the Maryland Energy Group, a collection of about 15 industrial employers, hospitals and universities. Energy costs account for about 20 percent of U.S. Gypsum's budget, typical in that group.

Members are pressing for lower overall rate increases as well as a shift in the way the increases are allocated between different categories of customers, said Todd R. Chason, an attorney who represents the Maryland Energy Group.